Why we need to understand cultural context when applying behavioural economicsThe increase in research in markets such as Asia and Latin America makes understanding the impact of cultural context on consumer decision making more important than ever before. While quantitative researchers have long accepted that survey research is affected by culture through phenomena such as acquiescence bias or extreme response styles, cultural differences have far more diverse and wide-ranging implications for marketing and market research.

Behavioural economics is being enthusiastically adopted across the market research industry all over the world. Researchers everywhere are applying insights from decision making science and embracing the concept that we’re all a little bit irrational. But are we irrational in the same way?

We’re so WEIRD
Much of the research on decision making that is in the public realm has been conducted almost exclusively in Western countries and especially in the US. This means that we are implicitly assuming that these cognitive biases are universal and function largely in similar ways in different cultures. However, 96% of samples in psychological studies come from countries with only 12% of the world’s population, which means that a randomly selected American is 300 times more likely to be a research participant than is a randomly selected person from outside of the West. These countries are commonly referred to as WEIRD (Western, Industrialised, Educated, Rich and Democratic), which makes them vastly unrepresentative as a sample in psychological research.

Even though cross-cultural research into decision making is still in its infancy, a growing body of evidence suggests that behavioural economics as a field will hugely benefit from it as differences between cultures help unpack the deeper foundations of behaviour. Given the emphasis of many cognitive decision making theories on the impact of immediate context such as framing or priming, it’s surprising how little culture is taken into account. While social psychology has a wealth of knowledge on how cultural context affects us, theories in cognitive psychology rarely consider culture as a factor due to implicit assumptions about the universality of cognitive processes: according to these researchers, what we think about may vary, but how we think is always the same.

Müller-Lyer Arrows

However, research has shown even fundamental cognitive functions such as how we perceive colour can significantly differ based on the cultural context you’ve grown up in. Similarly, perception of seemingly simple optical illusions such as Müller-Lyer arrows have been shown to vary across cultures and even age groups.

Through the looking glass of cultureWhen talking about culture, we often refer to aspects such as values, attitudes, social norms, beliefs and traditions. However, despite long-standing debates within academia, no commonly accepted definition of culture actually exists. Instead, researchers tend to focus on certain aspects of culture depending on their area of interest and the phenomena they are investigating.

On a general level there is a wealth of evidence that economic, social and linguistic environments strongly shape people’s behaviour, motivations and preferences: for example, a study investigating time discounting (i.e. whether we value immediate rewards more than those in the future) in 45 countries found that differences at country level related to wealth and education as well as cultural factors such as individualism, the importance of tradition and whether time was conceptualised as linear or cyclical. However, without a unifying framework of conceptualising culture research such remains too scattered and almost makes it harder to grasp the bigger themes underlying cultural differences. A more effective way of understanding culture’s impact on how BE biases work differently in different countries is to look at some measurable differences between cultures which do affect how a person’s cognition works while they make decisions. While other frameworks exist, one of the most powerful ones is a person’s self-concept.

“Me, myself and I” vs. “All together now”The most widely analysed dimensions of culture are individualism and collectivism. Often discussed in the context of Geert Hofstede’s Taxonomy of Cultural Differences, these dimensions have received a lot of attention both among academics and practitioners. In a nutshell, individualism is characterised by detachment from relationships and community with the individual seeing himself as relatively independent from others, whereas collectivism is characterised by the importance placed on relationships, roles and status within the social system, with the individual seeing himself inseparable from his network of social relations.

However, at the level of the individual, these cultural mindsets affect how we see the world through organising the information we have about ourselves, directing our attention to information that is perceived to be relevant, shaping motivations and influencing how people appraise situations that influence their emotional experiences. These self-concepts can be placed on a continuum between two poles: independent and interdependent selves. Independent self-concepts are typically more prevalent in individualistic countries, whereas interdependent ones tend to be more common in collectivistic ones, although variation exists within countries.

Those termed independent define themselves through internal attributes such traits, abilities, personal values and preferences, and see behaviour as being under the control of the individual, arising from internal attributes such as preferences (e.g. what you buy reflects your identity). Conversely, those termed interdependent define themselves through relationships with others and don’t necessarily see behaviour as a reflection of internal traits but situated in a specific context – your preferences might radically change depending on what social circumstances you are in.

This has profound consequences for some of the fundamental concepts in consumer psychology such as cognitive dissonance: if you see your behaviour reflecting your true self, which is ideally consistent across time and circumstances, holding two or more conflicting ideas will make you feel uncomfortable. However, if you instead assume that your preferences merely reflect the current social circumstances and can therefore change from one moment to the next, conflicting ideas will not pose a threat to your identity, which means the concept of cognitive dissonance exerts much less power on consumers in e.g. East Asian cultures. As cognitive dissonance, often seen as irrational, is commonly used in advertising, understanding the extent to which it is prevalent in the cultural context is crucial to efficient marketing communications.

I am what I buy… or am I?
Whether or not we see ourselves as separate individuals or intertwined with others is also important in understanding consumer choice. Is choice an individual endeavour, reflecting our internal attributes or one that takes other people into account and says little about the chooser? In Western cultures, choice is seen as an act of self-expression: uniqueness is desirable and choices are a way to paint a portrait of yourself for the outside world, so we vary our choices in an attempt to gain a sense of “specialness”. In behavioural economics, this is termed as diversification bias where we seek variety in both what and how we choose which may sometimes lead to seemingly irrational behaviour. However, the majority of the research on this effect has been conducted in Western countries and specifically in the US where personal choice is almost one of the key cultural values.

When choice is an act of self-expression, it becomes hugely important for the individual, and the psychological impact of either lack of choice or failed choice is larger, which leads to strategies such as variety-seeking. However, in in collectivistic cultures choice is often an interpersonal task which means the success or failure of making a choice that portrays oneself in the most positive light is not as big a concern. Subsequently, recent research has shown that the diversification bias is weaker in these cultural contexts.

Self-concepts also affect the strength of another well-known behavioural economics concept: the endowment effect, where simply owning an object enhances its perceived worth, and owners value objects substantially (and irrationally) more than potential buyers do. Because owning an object activates an association between it and the self, the Western focus on self-enhancement means this association automatically boosts the object’s value. Therefore, the strength of the endowment effect is influenced by the degree to which self-enhancement is culturally valued, with recent research suggesting that the effect is indeed stronger in a Western context. In practice this means that sales tactics such as free trial or “bait and switch” may be less effective in these non-Western contexts with weaker endowment effect combined with weaker cognitive dissonance.

Fifty shades of irrationality
Understanding the potential cultural influences on thought is crucial for everyone attempting to accurately describe and predict consumers’ decision making. Insights from behavioural economics might well be applicable in different cultures, but we need to have highly nuanced sense of the specific characteristics of each cultural context and its impact on consumer decision making to ensure effective applications. As behavioural economics professor Dan Ariely notes, the biggest challenge for the field in the next 10 years is understanding the generality of the findings so far and to what extent the effects discovered carry over in different contexts. As market research gradually abandons the error of rationality and adopts more principles from behavioural economics, let’s make sure we don’t entrench a new mistake: universality.

Elina Halonen is a founding partner of the Irrational Agency and editor at InDecision blog.

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